NEW DELHI, Sept 5 Narendra Modi took decisive
action as chief minister of Gujarat state to secure
round-the-clock supplies of electricity. Now, as prime minister
of India, he is under attack for failing to avert a national
power crisis.

More than half of India's thermal power stations have less
than a week's supply of fuel - the lowest levels since mid-2012
when hundreds of millions of people were cut off in one of the
world's worst blackouts.

Coal stocks at thermal stations have hit critical levels as
payment disputes escalate, unleashing power cuts that could
choke off an economic recovery before it takes hold and hurt
Modi's prospects at forthcoming state elections.

Financial metropolis Mumbai was plunged into darkness for
most of Tuesday, amid a row between private generators and
regional distributors that is symptomatic of an industry mired
in debt and arrears of at least $100 billion.

It's a headache for Modi that experts say will only get
worse. His government is resisting political pressure for a
bailout, just two years after a rescue by the last government
that it denounces as a "farce".

"The moment I start with financial assistance for one state,
all the states will be asking me," Power and Coal Minister
Piyush Goyal told reporters on Wednesday as he marked a rocky
first 100 days in the job.

"States have to improve their own systems. I can't fund
their coal purchases," said Goyal, who is mediating in payment
disputes in an attempt to mitigate the power crisis.

Prithviraj Chavan, chief minister of Maharashtra, has from
state capital Mumbai pointed the finger of blame at Modi, who
won election by a landslide in May with promises of economic
reforms, new jobs and dynamic growth.

"The centre is responsible," said Chavan, a leader of the
opposition Congress party. He added that he urged Modi two weeks
ago to call crisis talks on the power industry, but says New
Delhi "has not taken serious note".

Maharashtra is one of several states that are at odds with
New Delhi on power and coal supplies, and will soon hold
elections. Modi's nationalist party hopes to boost its strength
in the upper house of parliament, where it lacks a majority.

ACHILLES' HEEL

Since Modi took power, coal stocks at thermal power stations
that generate three-fifths of India's power have nearly halved
to just six days' cover. Of 100 plants, 56 are now 'critical'
with less than a week's supply.

The shortages have arisen not because India lacks coal - it
has reserves of 61 billion tonnes. Nor does India consume much
power: per capita use is one-seventeenth of the U.S. level, and
400 million Indians have no electricity at all.

What India does have is a mismatch between the regulated
price at which power is sold and the cost of producing it, which
is typically 20-30 percent higher.

As a result, the power sector is caught in a debt trap,
leaving generators unable to scrape together the cash to buy
fuel from Coal India, a state behemoth that successive
governments have shied away from restructuring.

"We have a bizarre situation where there is demand for power
from distributors without the ability to purchase. Generating
capacity is stuck without a contract or the fuel," said Debasish
Mishra, a senior director and energy expert at Deloitte.

The situation "might precipitate quite fast into a crisis,"
said Mishra, urging the opening up of coal production to
competition and amending power tariffs to properly take into
account the cost of fuel.

MODI MODEL

Modi tackled a similar power crisis in 2005 as premier of
Gujarat - a western state with a population the size of Britain
- with measures that experts say would work in India today.

His state government assumed existing power company debts,
freed the firms of populist pressures that kept power tariffs
artificially low and clamped down on rampant electricity theft.

As a result, Gujarat is now a surplus power producer.

Doing the same at a national level would, however, be tough
as responsibility for power is shared between the 'centre' and
India's 29 federal states. The problem is a lot bigger too.

The industry has racked up bank debts of 5 trillion rupees
($84 billion), according to central bank figures. Debts owed by
distributors totalled $18 billion in 2012, the year of the last
rescue. Coal India's receivables are $1.4 billion.

Worse, the World Bank estimates that annual losses in the
Indian power sector could rise to $27 billion by 2017 without
action to tackle wasteful subsidies, power theft and political
meddling.
(Additional reporting by Krishna N Das in New Delhi and Sumeet
Chatterjee in Mumbai; Writing by Douglas Busvine)

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